2010 (August)
Paper: 101
Full Marks: 80
Time: 3 hours
Answer all
questions. The questions are of equal value. (16 Marks each)
1.
(a) Discuss briefly the elements of Firm’s environment.
Ans: Factors/Components/Elements of business environment
On the basis of extent of intimacy with the firm, the environmental
factors may be classified into different levels or types. There are broadly two
types of environment, the internal environment, i.e. factors internal to the
firm and the external environment i.e. factors external to the firm which have
relevance to it.
The internal factors are generally regarded as controllable factors
because the company has control over these factors; it can alter or modify such
factors as its personnel, physical facilities, organisation and functional
means such as marketing mix to suit the environment.
The external factors on the other hand are, by and large, beyond the
control of a company. The external or environmental factors such as the
economic factors, socio-cultural factors, government and legal factors,
demographic factors etc., are therefore generally regarded as uncontrollable
factors.
Some of the external factors have a direct and intimate impact on the
firm (like the suppliers and distributors of the firm). These factors are classified
as micro environment, also known as task environment and operating environment.
There are other external factors which affect an industry very generally (such
as industrial policy, demographic factors etc.). They constitute what is called
macro environment, general environment or remote environment. We may therefore
consider the business environment at three levels:
a)
Internal environment
b)
Micro environment/ task environment/ operating
environment
c)
Macro environment/ general environment/ remote
environment
Although business environment consists of both internal
and external environments, many people often confine the term to the external
environment of business.
Internal Environment:
The factors
in internal environment of business are to a certain extent
controllable because the firm can change or modify these factors to improve its
efficiency. However, the firm may not be able to change all the factors. The
various internal factors are:
a) Value system : The value system of an
organisation means the ethical beliefs that guide the organisation in achieving
its mission and objectives. It is a widely acknowledged fact that the
extent to which the value system is shared by all in the organisation is an important
factor contributing to its success.
b) Mission and objectives : The business domain of
the company, direction of development, business philosophy, business policy etc
are guided by the mission and objectives of the company. The objective of
all firms is assumed to be maximisation of profit. Mission is defined as
the overall purpose or reason for its existence which guides and influences its
business decision and economic activities.
c) Organisation structure : The organisational
structure, the composition of the board of directors, the professionalism of
management etc are important factors influencing business decisions. The nature
of the organisational structure has a significant influence over the decision
making process in an organisation. An efficient working of a business
organisation requires that the organisation structure should be conducive for
quick decision-making.
d) Corporate culture : Corporate culture is an
important factor for determining the internal environment of any company.
In a closed and threatening type of corporate culture the business decisions
are taken by top level managers while the middle level and lower level managers
have no say in business decision-making. This leads to lack of trust and
confidence among subordinate officials of the company and secrecy pervades
throughout the organisation. This results in a sense of alienation among
the lower level managers and workers of the company. In an open and
participating culture, business decisions are taken by the lower level managers
and top management has a high degree of confidence in the subordinates.
e) Quality of human
resources : Quality
of employees that is of human resources of a firm is an important factor of
internal environment of a firm. The characteristics of the human
resources like skill, quality, capabilities, attitude and commitment of its
employees etc could contribute to the strength and weaknesses of an
organisation. Some organisations find it difficult to carry out
restructuring or modernisation plans because of resistance by its
employees.
f) Labour unions : Labour unions
collectively bargains with the managers for better wages and better working
conditions of the different categories of workers. For the smooth working of a
business firm good relations between management and labour unions is required.
g) Physical resources and
technological capabilities : Physical resources such as, plant and equipment and
technological capabilities of a firm determine its competitive strength which
is an important factor for determining its efficiency and unit cost of
production. Research and development capabilities of a company determine
its ability to introduce innovations which enhances productivity of workers. It
is, however, important to note that the rapid technological growth and the
growth of information technology in recent years have increased the relative
importance of intellectual capital and human resources as compared to physical
resources of a company.
External
Environment:
The external environment is made up of micro and macro environment.
Micro
Environment: This refers to the factors which influence the
prospects of a particular firm; the firm can influence them with certain
efforts. They are as follows:
a) Customers: The type and the nature of the customers influence
the rate of growth of any firm. The firm has to be very particular about
choosing the inputs and transforming them in to the output. The cost factor is
subsidiary if the firm is dealing with such customers. If the customers are
more commoners the quality of the commodity if less important than the cost of
production. The customers want the commodity at a lower price so the firm will
have to conscious about the cost in purchasing the inputs, in employment of
labour, in packing and such other factors influencing the cost.
b) Competitors: In modern
age an absolute monopoly is a very rare thing. Most of the FIRMS have to work
in some type of competition such as Monopolistic Competition or Oligopoly. A
Firm has to be particular about the intensity of the competition. If the
competition is severe the firm will have to be very particular about keeping
the costs at the lowest level so that it can sell the commodity at a
competitive price.
c) Suppliers: The quality
of the commodity and the cost of production are considerably influenced by the
supplies of the inputs. If the inputs are supplied at economical prices, are of
standard quality and if the supply is uninterrupted and timely the firm can
produce a standard quality of a commodity and sell it at reasonable prices.
Often the firms employ more than one supplier so as to ensure an uninterrupted
supply of inputs. If the supplies of inputs are regular, consistent and
reliable there is no need to keep a larger quantity in stock.
d) Channel Intermediaries: They refer to the different levels in
the chain from the production unit to the final customer. The chain
incorporates the stockists, the wholesalers, the distributors, the retailer
etc. If there is a high level of efficiency maintained at every part of the chain
the commodity can reach the final consumer in good condition and at a
reasonable price. So the Firm has to select and maintain efficient
intermediaries. The firm has to offer them proper terms
e) Society: The prospects of a firm depend upon the society in
which it has to work and sell its products. In a homogenous society the job of
the firm is easy. The people have almost the same habits likes and dislikes,
values and ethical norms. In a heterogeneous society the job of the firm is
difficult. A particular product may be acceptable to a particular section of
the society but not acceptable to some other sections. In a country like India
a firm has to into consideration all types of sections of the community such as
the religious sections, the caste, the sect, language, region etc.
Conclusion: All these forces
influence the chances available to a firm to survive and develop.
Macro
Environment: The macro environment comprises of those forces
which influence all business firms operating in an economy. They can be studied
under the following categories: economic environment, political and regulatory
environment, social/ cultural environment, demographic environment and
technological. The components of these environment are discussed as below:
a) Economic Environment: The
survival and success of each and every business enterprise depend fully on its
economic environment. The main factors that affect the economic environment
are:
(i) Economic Conditions: The
economic conditions of a nation refer to a set of economic factors that have
great influence on business organisations and their operations. These include
gross domestic product, per capita income, markets for goods and services,
availability of capital, foreign exchange reserve, growth of foreign trade,
strength of capital market etc. All these help in improving the pace of
economic growth.
(ii) Economic Policies: All
business activities and operations are directly influenced by the economic
policies framed by the government from time to time. Some of the important
economic policies are: Industrial policy, Fiscal policy, monetary policy,
foreign investment policy and Export –Import policy. The government keeps on
changing these policies from time to time in view of the developments taking
place in the economic scenario.
(ii) Economic System: The
world economy is primarily governed by three types of economic systems, viz.
Capitalist economy; Socialist economy; and Mixed economy. India has adopted the
mixed economy system which implies co-existence of public sector and private
sector.
b) Political Environment: This includes the political system,
the government policies and attitude towards the business community and the
unionism. All these aspects have a bearing on the strategies adopted by the
business firms. The stability of the government also influences business and
related activities to a great extent. It sends a signal of strength, confidence
to various interest groups and investors.
c) Legal Environment: This
refers to set of laws, regulations, which influence the business organisations
and their operations. Every business organisation has to obey, and work within
the framework of the law. The important legislations that concern the business
enterprises include: Companies Act, 1956, Foreign Exchange Management Act,
1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of
Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc.
Besides, the above legislations, the following are also form part of the legal
environment of business.
(i) Provisions of the
Constitution
(ii) Judicial Decisions.
d) Social Environment: The
social environment of business includes social factors like customs,
traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The
social structure and the values that a society cherishes have a considerable
influence on the functioning of business firms. For example, during festive
seasons there is an increase in the demand for new clothes, sweets, fruits,
flower, etc.
e) Technological Environment:
Technological environment include the
methods, techniques and approaches adopted for production of goods and services
and its distribution. The varying technological environments of different
countries affect the designing of products. In the modern competitive age, the
pace of technological changes is very fast. Hence, in order to survive and grow
in the market, a business has to adopt the technological changes from time to
time.
f) Demographic Environment: This
refers to the size, density, distribution and growth rate of population. All
these factors have a direct bearing on the demand for various goods and
services.
g) Natural Environment: The
natural environment includes geographical and ecological factors that influence
the business operations. These factors include the availability of natural
resources, weather and climatic condition, location aspect, topographical
factors, etc. Business is greatly influenced by the nature of natural
environment. For example, sugar factories are set up only at those places where
sugarcane can be grown. It is always considered better to establish manufacturing
unit near the sources of input.
Or
(b) What
important changes do you notice in the development strategy in Indian economy?
2.
(a) Write a brief note on price controls in
India.
Or
(b) “The
scenario of MNCs is effective to the Indian economy.” Justify.
3. (a) Explain the
instruments of monetary policy with reference to India.
Ans: Instruments
of Monetary Policy or Credit Control tools:
The instruments used by the central
Bank for controlling the supply of bank money are classified into two
categories namely
A)
General
Instruments and
B)
Selective
Instruments.
A)
The
General Instruments of Credit Control: These instruments are called general because
they are uniformly applicable to all commercial banks and in respect of loans
given for all purposes. The general instruments are as follows:
i.
The Bank rate policy: Bank rate is the official rate at which the
central bank of the country rediscounts bills offered by the commercial banks.
When the central bank wants to bring about a
reduction in bank credit, it raises the bank rate. The effect is that the
commercial banks raise the market rate in order to retain their profit margin.
Rise in the market rate brings about a reduction in the volume of bills offered
by the customers to the commercial banks. If the volume of bills is less, the
amount of money going out from the commercial banks to the people is less i.e.:
the supply of money is less.
If the central
bank wants to bring about an expansion of Bank credit it lowers the bank rate.
The commercial banks can lower the market rate due to which the people offer
more bills for discounting and the supply of money increases.
ii.
Open Market Operations: The
Central bank enters in to the bond market and purchases or sells government
securities for bringing about expansion or reduction of credit.
iii.
Variable Reserve Ratio: Every commercial bank in the country is under
a legal obligation to keep a certain proportion of their deposits in the form
of cash with the central bank of the country. The ratio of these cash deposits
to the total deposits of a commercial bank is called the cash reserve ratio.
RBI is authorised to change the rate within that margin depending upon the
requirements of the time. When the banks
keep more cash with the central bank they are left with less cash for advancing
loans. The supply of credit money declines.
iv.
Statutory Liquidity Ratio (SLR): It is legally obligatory on the part of all
commercial banks to invest a certain part of their deposits in government
bonds. The ratio of the money invested in government bonds to the total
deposits is called the statutory liquidity ratio. The RBI is authorised to fix
and change the SLR within this margin.
When it wants to
bring about a reduction of credit, it increases the SLR. The commercial banks
have to invest a larger part of their deposits in government bonds. To that
extent they are left with less cash for advancing loans that puts a brake on
their capacity to extend credit.
v.
Repo Rate: This
is the rate at which RBI advances short term funds to the commercial banks. A
rise in the repo rate means that the commercial banks have to pay higher rates
of interest to RBI. Consequently they have to charge higher rates of interest
to their customers. The cost of money is raised. The demand for money falls and
the amount of money flowing from the RBI to the commercial banks and thereafter
from the commercial banks to the public is reduced.
B)
Selective
Instruments of Credit Control: These
instruments of monetary policy can be used in respect of any particular bank or
in respect of a loan given against a particular security. Hence they are called
selective instruments. The prominent amongst them are as follows:
i.
Regulation of credit margin: Whenever a commercial bank gives a loan
against a tangible security, it maintains a margin between the value of the
security and the amount of the loan given. This is necessary for maintaining
safety of the bank. It also provides an instrument to the central bank to
control the volume of credit given against a particular security. This instrument is especially used for
preventing cornering of stocks of essential raw materials.
ii. Direct Action: The
central bank gives instructions to the commercial banks in respect of their
lending policies. If a particular bank ignores the instructions RBI can take
disciplinary actions against it. The action consists of charging a penal rate
of interest to the offending bank, stopping lending to that bank or rejecting
the bills offered by that bank for discounting. In any case the bank has to
raise the rate charged to the customers which drives the customers away from
that bank.
iii. Moral suasion: The central bank interacts with the
commercial banks and urges them to adopt a particular credit policy. The
commercial banks accept the policy suggested by the central bank because they
have a respect for the central bank.
Moral
suasion is better than direct action. It is preventive whereas direct action is
curative. A frequent direct action taken by the central bank spoils the
atmosphere between the central bank and the commercial banks. Hence as far as
possible the central bank relies upon moral suasion.
iv. Consumer credit: The commercial banks advance loans to enable
their customers to purchase durable costly consumer goods. The central bank can
prescribe the rate of interest which they have to charge on these loans. It can
also fix the installments in which the loans are to be recovered. If the rate
of interest is raised and the number of installments is reduced it is difficult
for the people to use them. The demand for the concerned consumer commodity
falls.
v. Publicity: The central bank of the country gives a wide
publicity to its policy through its publications. The commercial banks accept
that policy even when the central bank does not insist upon it. This method is
also widely used by the central banks in developing countries.
Conclusion:
In a developing country like India,
the selective instruments are used more. They produce positive as well as
negative effect. They directly bring about the desired change. They can be
effective even if the country does not like a well organized money market and
capital market.
Or
(b) What is
the changing structure of private savings in India?
4. (a) Explain the
redressal machinery under the Consumer Protection act.
The following agencies established under the Consumer Protection Act
for the redressal of consumers disputes:
a)
A
District Consumer Disputes Redressal Forum to be known as the "District
Forum" established by the State Government in each district of the
State by notification. The State Government may, if it deems fit, establish
more than one District Forum in a district;
b)
A
State Consumer Disputes Redressal Commission to be known as the "State
Commission" established by the State Government in the State by
notification; and
c)
A
National Consumer Disputes Redressal Commission established by the Central
Government by notification.
1. The District Consumer Protection Council
At the lowest level are the District Forums and these are established in each
District and have jurisdiction to entertain complaints where the value of goods
or services and the compensation if any, claimed does not exceed Rs.20,00,000
(TWENTY LAKHS), and a complaint can be filed in a District Forum within the
local limits of which
a)
The opposite party resides or
b)
Carries on his business or works for gain or
c)
Where the cause of action arises.
Membership:
The District Consumer
Protection Council (hereinafter referred to as the District Council) shall
consist of the following members:
a.
The
collector of the district (by whatever name called) who shall be its Chairman;
and
b.
Such
number of other official and non-official members representing such interest as
maybe described by the state government.
Objects
of the District Council: The Objects of every District Council shall be to promote and protect
within the district the rights of consumers laid down in the clause (a) to (f)
of Section 6 (National Consumer Protection Council)
2. The State Consumer Protection Councils: The State Consumer Disputes Redress
Commission is established in each state and these have jurisdiction to
entertain complaints where the value of goods or services and the compensation
if any, claimed exceeds Rs.20,00,000 (TWENTY LAKHS) but does not exceed
Rs.1,00,00,000 (ONE CRORE).
a.
The
Minister in-charge of consumer affairs in the State Government who shall be its
Chairman;
b.
Such
number of other official or non-official members representing such interests as
may be prescribed by the State Government.
Objects
of state council: The objects of every State Council shall be to promote and protect
within the State the rights of the consumers laid down in clauses (a) to (f) of
section 6. (Objects of National Council)
3. The Central Consumer Protection Council: The
Central Government may, by notification, establish with effect from such date
as it may specify in such notification, a council to be known as the Central
Consumer Protection Council (hereinafter referred to as the Central Council). The National Consumer Disputes Redressal
Commission has jurisdiction to entertain complaints where the value of the
goods or services and compensation if any claimed exceeds Rs.1,00,00,000 (ONE
CRORE)
a)
The
Minister in charge of consumer affairs in the Central Government, who shall be
its Chairman, and
b)
Such
number of other official or non-official members representing such interests as
may be prescribed.
The objects of the Central Council shall be to promote and protect the
rights of the consumers such as-
a)
The
right to be protected against the marketing of goods 2[and services]
which are hazardous to life and property;
b)
The
right to be informed about the quality, quantity, potency, purity, standard and
price of goods 1[or services, as the case may be], so as to
protect the consumer against unfair trade practices;
c)
The
right to be assured, wherever possible, access to a variety of goods and
services at competitive prices;
d)
The
right to be heard and to be assured that consumers' interests will
receive due consideration at appropriate forums;
e)
The
right to seek redressal against unfair trade practices 1[or
restrictive trade practices] or unscrupulous exploitation of consumers; and
f)
The
right to consumer education.
(b) Explain
the nature of India’s foreign trade.
5.
(a) Explain the impact of structural reforms in
India on household income.
Or
(b) State the
position of India in terms of global integration in IT Revolution.
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